ACCA SBR Flashcards

Legally enforceable right to offset AND
Intention to settle on a net basis

The FS should be adjusted (break-up basis)

SFP
Do not derecognise PPE
Recognise liability
Why?
Unlikely to be a sale / transfer of risks and rewards
In substance this is a secured loan

Condition linked to the market price of company shares
Ignore in computation of the P&L charge

Closing rate
Carrying amount of goodwill will change every year

PBIT – down – extra depreciation
CE – up – revaluation reserve recognised
Therefore, ROCE down.

IAS 7 – direct – gives users additional information
Accounts preparers – indirect – easy to prepare

Omission of information would influence economic decisions of users
Mis-statement of information would influence economic decisions of users
Obscuring information would influence economic decisions of users

Intangible asset

Global Reporting Initiative

Cash flows from operating activities less capital expenditure

Current share price / EPS

Receivables / Credit sales x 365

1. Add back service costs (non-cash items)
2. Deduct contributions paid

Contingent liabilities must be measured at FV irrespective of probability.
Remember that the rules for goodwill calculation are different to the IAS 37 rules.

Input + Process + Outputs
Relevance – we consolidate subsidiaries only if they meet the definition of a business.
If a company holds only a single asset, the transaction may well be regarded as an asset purchase rather than a business combination.

Investor has power over investee AND is exposed to variable returns from investee AND has ability to affect the returns

FV through OCI if no significant influence
Equity account if significant influence or joint control
Consolidate if control

Remember to consider the substance of the transaction rather than the % shareholding.

Expense in the P&L (even constructed assets where large companies would capitalise the borrowing cost)

Transaction with CLOSE FAMILY of KEY MANAGEMENT

1. TOTAL revenue greater than or equal to 10% of aggregate TOTAL revenue
2. TOTAL assets greater than or equal to 10% of aggregate TOTAL assets
3. Profit or loss is greater than or equal to the greater of:
(a) TOTAL profits of all segments making a profit
(b) TOTAL losses of all segments making a loss

Temp difference = 1,000
X 20% = 200
Dr Goodwill
Cr DT liability

Temp difference = 1,000
X 20% = 200
Dr DT asset
Cr P&L

Temp difference = 1,000
X 20% = 200
Dr OCI
Cr DT liability

Lifetime expected credit losses (Note – 3 stage model is not used for most receivables; it is more relevant to bonds etc)

IP – fair value, gains to P&L
Financial liability – fair value, gains to P&L (Note – using amortised cost would create an ‘accounting mismatch’)

Not settled in cash, e.g., contract to buy wheat settled in wheat.
Outside scope of IFRS 9
No accounting until wheat is actually purchased

Event between SOFP date and date FS are approved
Gives evidence on condition that existed at the SOFP date

Split accounting
Liability and equity
Similar to convertible loan

Remeasurement difference / actuarial difference

Service cost
Net interest cost

SFP
Derecognise PPE
Recognise Right of Use asset, Cash, and Lease liability
P&L
Profit (or loss) on derecognition of PPE (‘part-disposal)

SFP
Receivable
P&L
Finance income

Currency influencing sales price
Currency influencing labour and material costs

Inventory:
– Historic rate if valued at cost
– Closing rate if valued at NRV
Payable – Closing rate

1. Assets obviously impaired
2. Goodwill
3. Other non-current assets

Smallest group of assets that generates independent cash flows

Separable (can be sold separately) OR
Arises from legal or contractual rights

Revalue the asset to FV
Gain to OCI
Reclassify the asset to IP
Subsequent gains to P&L

No
Providing significant non-incidental services, e.g., catering
Classify as PPE

On the basis of STAND-ALONE selling prices

A DISTINCT obligation (i.e., sold separately) to transfer goods or services

Change in estimate not policy
Account for prospectively
No prior period adjustment

Separate major line of business
Already discontinued or held for sale at the SOFP date

Cash flow hedges
Disposal of foreign subsidiary (exchange gains)
Disposal of bonds (NOT shares) classed as FVOCI

Self-interest. More interested in maximising profits than in fair presentation.

Highest and best use if:
– Physically possible
– Legally permissible
– Financially feasible

• Relevant information
• Faithful representation

• Completeness
• Neutrality
• Freedom from error

Lack of integrity -straightforward business conduct (ACCA Principle)

SFP – fair value.

P&L – changes in fair value.

1) If there is goodwill in SFP.
2) If there are intangibles in the SFP which are not being amortised.
3) If there is an impairment indicator – e.g. the government bans a product that the company sells.

Land and buildings held to earn rentals and / or for capital appreciation.

Recognise in the P&L over the period in which the related expenditure is recognised.

PPE – on regular basis – e.g. every 3 to 5 years.
IP – every year.

Receivables and cash.
Translation of foreign transactions by a company.

Yes.
The maximum gap is three months.

Residual interest in assets minus liabilities.

If it results in relevant and faithful representation.

Lack of professional competence and due care (ACCA Principle)

• Financial.
• Manufactured.
• Intellectual.
• Human.
• Natural.
• Social and relationship.

Expense in the P&L.

Profit for the year attributable to the ordinary sharehokders (i.e. and after NCI)

divided by:
Weighted average number of equity shares

multiplied by 100

• Parent company / ultimate controlling party.
• Key management compensation (e.g. salary).
• Related party transactions.

Change in accounting policy.
Material error in prior year.

Contingent liabilities = possible

Contingent assets = probable.

Detailed formal plan.
Announced to those affected (e.g. the staff).

Liability of uncertain timing or amount.

Only if it is likely that the company will make future taxable profits against which the losses can be offset.

SFP
Right of use asset and lease liability

P&L
Depreciation and finance cost

Right to control / specified asset / period of time / in exchange for consideration.

• Identify the contract.
• Identify the performance obligations.
• Determine the price.
• Allocate the price to the performance obligations.
• Recognise revenue as performance obligations are satisfied.

Segment whose results are regularly reviewed by chief operating decision maker.

Quoted price in active market for identical asset or liability.
Example = share listed on a stock exchange.

Cash flow hedge accounting.
The derivative protects Mary from changes in value in highly probable future cash flows

Fair value hedge accounting.
The derivative protects Andrew from change in value of the recognised asset (the sausages).

• Value changes in response to change in value of some underlying asset or liability.
• Requires no or little initial investment.
• Settled at a future date (normally for cash).

Liability = Present obligation / transfer economic resources / past event.

Financial liability = Obligation to deliver cash.

No.
It should however be reviewed for impairment at each SFP date.

Negative goodwill should be credited to the P&L immediately.

• Number of instruments expected to vest.
• Fair value of instrument at SFP date.
• Vesting period.

• Number of instruments expected to vest.
• Fair value of instrument at grant date.
• Vesting period

Defined benefit pension scheme.

“Employer makes a promise to the employee that they will receive certain benefits when they retire.
Benefits will be linked to length of service and the employees’ salary on retirement.”

Below current assets.

After tax.
Before NCI.

Lower of:

Existing carrying value;
Fair value less cost to sell.

Present value of the future cash flows from the asset.
Used when testing for impairment.

You must capitalise development costs if the project is commercially viable etc.

If an asset is being constructed over a period of time.
It is then known as a qualifying asset.

PPE – yes
Investment properties – no

Dividends from associates would be in investing activities.
Dividends to NCI would be in financing activities.

Currency of the primary economic environment in which the entity operates.

Equity accounting.

Two or more parties have joint control / each party has the right of veto over key decisions.

• Gain on PPE revaluation.
• Gain or loss on FVOCI investment.
• Remeasurement gain or loss on pension plan.
• Exchange difference on translation of foreign subsidiary.
• Gain or loss on cash flow hedge.

Present economic resource / controlled / past event.

• Relevance
• Faithful representation
• Comparability.
• Verifiability.
• Timeliness.
• Understandability